Huntington National Bank 2006 Annual Report Download - page 44

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
The primary simulations for EVE at risk assume an immediate and parallel increase in rates of +/– 100 and +/– 200 basis points
beyond any interest rate change implied by the current yield curve. The table below outlines the results compared to the previous
year-end and policy limits. All of the positions were within the board of directors’ policy limits.
Table 22 — Economic Value of Equity at Risk
Economic Value of Equity at Risk (%)
Basis point change scenario –200 –100 +100 +200
Board policy limits –12.0% –5.0% –5.0% –12.0%
December 31, 2006 +0.5% +1.4% –4.7% –11.3%
December 31, 2005 –0.8% +0.5% –2.5% –6.2%
Price Risk
Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair
value and are subject to mark-to-market accounting. We have price risk from trading securities, which includes instruments to
hedge MSRs. We also have price risk from securities owned by our broker-dealer activities, the foreign exchange positions,
investments in private equity limited partnerships and marketable equity securities held by our insurance subsidiaries. We have
established loss limits on the trading portfolio and on the amount of foreign exchange exposure that can be maintained and the
amount of marketable equity securities that can be held by the insurance subsidiaries.
Liquidity Risk
The objective of effective liquidity management is to ensure that cash flow needs can be met on a timely basis at a reasonable
cost under both normal operating conditions and unforeseen circumstances. The liquidity of the Bank, our primary subsidiary, is
used to originate loans and leases and to repay deposit and other liabilities as they become due or are demanded by customers.
Liquidity risk arises from the possibility that funds may not be available to satisfy current or future commitments based on
external macro market issues, asset and liability activities, investor perception of financial strength, and events unrelated to the
company such as war, terrorism, or financial institution market specific issues.
Liquidity policies and limits are established by our board of directors, with operating limits set by our MRC, based upon analyses
of the ratio of loans to deposits, the percentage of assets funded with non-core or wholesale funding and the amount of liquid
assets available to cover non-core funds maturities. In addition, guidelines are established to ensure diversification of wholesale
funding by type, source, and maturity and provide sufficient balance sheet liquidity to cover 100% of wholesale funds maturing
within a six-month time period. A contingency funding plan is in place, which includes forecasted sources and uses of funds
under various scenarios in order to prepare for unexpected liquidity shortages, including the implications of any rating changes.
Our MRC meets monthly to identify and monitor liquidity issues, provide policy guidance, and oversee adherence to, and the
maintenance of, an evolving contingency funding plan. We believe that sufficient liquidity exists to meet the funding needs of the
Bank and the parent company.
Sources of Liquidity
Our primary source of funding for the Bank is core deposits from retail and commercial customers. As of December 31, 2006,
these core deposits, of which our Regional Banking line of business provided 93%, funded 56% of total assets. The types and
sources of deposits by business segment at December 31, 2006, are detailed in Table 23. At December 31, 2006, total core deposits
represented 79% of total deposits, down slightly from 80% at the end of the prior year.
Core deposits are comprised of interest bearing and non-interest bearing demand deposits, savings and other domestic time
deposits, consumer certificates of deposit both over and under $100,000, and non-consumer certificates of deposit less than
$100,000. Other domestic time deposits are comprised primarily of IRA deposits and public fund certificates of deposit less than
$100,000. Brokered time deposits represent funds obtained by or through a deposit broker that were issued in denominations of
$100,000 or more and, in turn, participated by the broker to its customers in denominations of $100,000 or less. Negotiable
certificates of deposit represent large denomination certificates of deposit (generally $ million or more) that can be sold but
cannot be cashed in before maturity. Foreign deposits are interest bearing and all mature in one year or less.
Domestic time deposits of $100,000 or more, brokered deposits and negotiable CDs totaled $4.5 billion at the end of 2006 and
$4.1 billion at the end of 2005. The contractual maturity of these deposits at December 31, 2006 was as follows: $1.8 billion in
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